Trade secrets cases are on the rise. Most often, they happen when an employee steals confidential computer code or client lists or marketing plans. You may think of them as disputes between employers and employees (or, in one instance, by a marketing agent against an NBA star).
While the majority of trade secret theft cases are brought civilly, defendants also face the threat of criminal prosecution under the Economic Espionage Act (EEA), 18 U.S.C. §§ 1831-1832. This blog post provides an overview of the EEA and then highlights recent enforcement trends.
The Economic Espionage Act
The Economic Espionage Act was enacted in 1996 and contains two separate provisions that criminalize the theft or misappropriation of trade secrets.
The first provision, 18 U.S.C. § 1831, prohibits the theft of trade secrets for the benefit of a foreign government, instrumentality, or agent. A breach of § 1831 requires the government to prove four things:
(1) the defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information;
(2) the defendant knew that this information was proprietary;
(3) the information was a trade secret; and
(4) the defendant knew that stealing the information would benefit, or was intended to benefit, a foreign government, instrumentality, or agent.
The potential punishment is substantial. Individuals are subject to 15 years’ imprisonment and a maximum fine of $5 million, while organizations are subject to a fine of $10 million or three times the value of the stolen trade secret, whichever is greater.
The second provision, 18 USC § 1832, criminalizes the theft of trade secrets for the benefit of someone other than the owner of the trade secrets. To establish a violation of § 1832, the government must prove:
(1) the defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information;
(2) the defendant knew this information was proprietary;
(3) the information was in fact a trade secret;
(4) the defendant intended to convert the trade secret to the economic benefit of anyone other than the owner;
(5) the defendant knew or intended that the owner of the trade secret would be injured; and
(6) the trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.
Not surprisingly, penalties are lower for violating this provision than for sharing trade secrets with a foreign government. Individuals are subject to 10 years’ imprisonment and a maximum fine of $250,000, while organizations are subject to a fine of $5 million or three times the value of the stolen trade secret, whichever is greater.
The Defend Trade Secrets Act
The Defend Trade Secrets Act of 2016 amended the EEA. It created, for the first time, a federal private cause of action for trade secret misappropriation. It allows a trade secret owner to file a civil action in federal district court seeking relief for trade secret misappropriation related to a product or service used in or intended for use in interstate or foreign commerce. 18 U.S.C. § 1836(b). Until the DTSA was passed, civil trade secrets misappropriation claims were limited to state courts. Now, the federal court floodgates are open.
Criminal Enforcement of the EEA
The government has wide discretion in deciding whether to initiate a prosecution under the EEA. The Justice Manual explains that the EEA is not intended to criminalize every theft of trade secrets for which civil remedies may exist under state law. Instead, the government must evaluate five “appropriate discretionary factors”:
(a) the scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent or foreign instrumentality;
(b) the degree of economic injury to the trade secret owner;
(c) the type of trade secret misappropriated;
(d) the effectiveness of available civil remedies; and
(e) the potential deterrent value of the prosecution.
The Manual also advises that “[t]he availability of a civil remedy should not be the only factor considered in evaluating the merits of a referral because the victim of a trade secret theft almost always has recourse to a civil action.”
Prosecutions under the EEA were extremely rare for the first 13 years after enactment—only 96 cases were brought between 1996 and 2009 (averaging 7.2 cases per year). From 2009 to 2016, federal prosecutors brought 69 criminal trade secrets cases, averaging 8.6 cases annually—an increase of 20 percent over the prior 13-year window. Case numbers have continued to increase—11 were brought in 2017, 11 in 2018, 16 in 2019, and 8 in 2020. Oddly, we could not find statistics for 2021 to the present. The government’s most recent annual intellectual property reports to Congress appear to omit these statistics or cite to old data.
More EEA Prosecutions Are Likely Coming
Over the past few years, the Department of Justice has continued to prioritize EEA enforcement.
In February, the Department of Justice and the Department of Commerce announced the launch of the multi-agency Disruptive Technology Strike Force, aimed to “target illicit actors, strengthen supply chains and protect critical technological assets from being acquired or used by nation-state adversaries.” The Strike Force is led by the Justice Department’s National Security Division and the Commerce Department’s Bureau of Industry and Security (BIS) and is comprised of experts from the FBI, Homeland Security Investigations (HSI) and 14 U.S. Attorneys’ Offices in 12 metropolitan regions across the country.
In May, the Justice Department issued a press release announcing the first five enforcement actions since the launch of the Strike Force. In two of the five cases, the government charged former software engineers with stealing software and hardware source code from U.S. tech companies in order to market it to Chinese competitors. Of note, the government chose to bring charges for the theft of trade secrets for monetary gain under § 1832, rather than economic espionage under § 1831.
The Defend Trade Secrets Act may lead to an increased number of civil trade secret cases. A high-profile civil DTSA case may grab the attention of an aggressive prosecutor. It’s very possible that the new Strike Force will monitor the federal dockets for civil cases that could also be criminal ones.